As a homeowner, you probably have a dream home in mind. However, making the necessary improvements to make your dream home a reality can cost you a lot of money. Most homeowners turn to personal loans to afford home renovations, but that might not always be the best choice for you. Here are four reasons why personal loans might not be the perfect solution to your financial troubles.
While it’s true that the interest rate for personal loans is lower than what you would pay on a credit card, it’s still much higher than the mortgage rate—and that means that if you don’t pay off your loan in full and on time, you’ll end up paying more in interest than if you’d just taken out a home equity loan. This means it will cost you more over time to use a personal loan for home improvements than it would any other type of financing.
Shorter Payment Term
Personal loans are due within one year and typically require monthly payments. If you’re planning to use the money for renovations or repairs, there is a good chance that those projects might take longer than the loan period. This means that unless you have significant savings or can afford to make payments while waiting for the work to be finished, taking out a personal loan might not work out well for you. Indeed, this can make you fall into the trap of more debt and negatively affect your credit score.
Interest Is Not Tax-Deductible
If your main reason for taking out this kind of loan is because you want to deduct the interest money from your taxes (so long as it meets certain criteria), think again. There are no tax benefits associated with personal loans. This means it could end up costing you more money than necessary if you’re not careful about how much money you borrow and what type of loan you choose.
Less Borrowing Potential
A personal loan typically has a lower borrowing potential than other types of loans, such as a home equity loan. This is because a personal loan is unsecured, meaning that it is not backed by collateral. As a result, lenders are typically more conservative in how much they are willing to lend to borrowers.
Home improvements are an integral part of creating a happy and comfortable home, especially as your family grows and changes. Though it can be tempting to take out a personal loan to handle the expenses that come with home renovations, it’s best to stop and think twice about alternative purchase solutions.
Okinus Credit Solutions in South Pelham, Georgia, offers alternative purchase solutions for homeowners looking to spruce up their homes. Our lease-purchase programs are easy and fast to access and come with flexible repayment options. Please fill out our lease-purchase application online or give us a call today at 844-450-0221 for more information.